Commercial Real Estate Financing – What To Expect?
So, you’re in the market for a commercial loan? It brings comfort to know what to expect when applying, and the process is actually pretty simple. What should you expect?
- It depends on what you are looking to do. If you are wanting to put as much down as possible (25-40%+), then a conventional loan would be the best option for you. If you are wanting to put as little money down as possible (10-15%), then an SBA loan might be your best option.
- Your next step would be to reach out to a bank/credit union or lender. It is easy to walk into a bank, maybe even your personal bank, and discuss a commercial loan with a loan officer there, but why not shop your bank with other banks? If you take something from this blog post, I would like it to be this: all lending institutions are not the same! Different banks/credit unions will have different terms, interest rates, and options for your commercial loan. This is where a company like First Capital Commercial comes in. We do the bank/credit union shopping for you! No need to waste your time going from one bank/credit union to another because we are able to get you the best interest rate and terms on the market.
- Be prepared to submit information about yourself. Personal and business taxes, personal financial statement, loan applications, credit check, etc. This point in the process is pretty exhaustive, but all the requested information is necessary to complete the loan underwriting.
- You will probably be required to pay for third party reports. These reports are crucial to your loan, and are really for your benefit. An environmental report is ordered to ensure that your building/land doesn’t contain any hazardous chemicals or other adverse conditions prior to your purchase. An appraisal is almost always conducted to determine value, which is crucial to your loan and your loan terms.
- If you pass the underwriting requirements, then the lending institution will typically send at least a Letter of Intent (LOI) to lend. Once accepted, you can move on to your closing. If you don’t pass the underwriting requirements, then you will receive a loan denial letter, or something similar to that.
- At closing, you sign all the necessary loan documents and other documents. A few days after the closing is usually when your loan actually funds.
- There are fees associated with getting loan, and being charged fees is standard in the lending industry. However, not all lending institutions charge the same amount for fees. Typically, you will see an origination fee, a document fee, and other fees associated with your loan. These fees cover loan costs, and help the lending institution be profitable. Lending institutions wouldn’t exist without fees and interest rates! Other costs may include title fees, insurance fees, and other relevant fees to help your loan close.
So, that’s a general idea of the process for obtaining a commercial loan. It is fairly simple when you know what to look for and what to expect.